Willful Blindness Worsens Inequality

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The rich really are getting richer, while the vast majority is getting poorer. All you have to do is look at the official government data to know this.

Sadly, though, most of our nationally prominent journalists, especially David Brooks of The New York Times and PBS, do not know this because they neglect to do a basic journalistic task. It’s called reporting.

At the top end, there is the growing wealth of the top 5 percent of workers. This is linked to things like perverse compensation schemes on Wall Street, assortative mating (highly educated people are more likely to marry each other and pass down their advantages to their children) and the superstar effect (in an Internet economy, a few superstars in each industry can reap global gains while the average performers cannot).

At the bottom end, there is a growing class of people stuck on the margins, generation after generation. This is caused by high dropout rates, the disappearance of low-skill jobs, breakdown in family structures and so on.

The first and overwhelming problem is that his scale is wrong, probably because Brooks just conjured up the only hard number in that passage.

Brooks writes about “the growing wealth of the top 5 percent.”

The threshold to be in the top 5 percent income group in 2012 was $161,000, analysis of tax return data by economists Emanuel Saez and Thomas Piketty shows.

That is a lot of money to most people, but it is pocket change for top Wall Streeters, the group whose pay Brooks properly calls perverse.

Lloyd Blankfein, who runs Goldman Sachs, was paid $23 million in 2012. That is 142 times the threshold to be in the top 5 percent.

Looked at another way, had Blankfein been paid weekly, his first paycheck would have shown almost 3 times the gross pay that those at the top 5 percent threshold labored all year to make.

Goldman’s 32,400 employees made $12.6 billion last year, which is as much money as the lowest-earning 6.2 million American workers made the year before.

To put that in another inequality perspective, in 2012 America had 23.3 million workers, all of them part-time or seasonal, who made less than $5,000. They averaged $2,025 each. Ponder that for a moment. About one worker in six made only $2,000.

Careful readers will note that Brooks referred to the top 5 percent of workers, not taxpayers. So, let’s look at compensation for services, as the government calls your paycheck.

How much must one earn to get into the top 5 percent?

In 2012 it was $115,000, Social Security data show.

That is much lower than the income on tax returns for two reasons. First, most taxpayers are actually two people, a married couple. Second, wages and salaries account for about three-quarters of all income with deferred wages like pension benefits pushing the share due to labor above 80 percent of income reported on tax returns. The rest is capital gains, rents, business profits and the like.

Brooks gets one thing right, what he calls “assortative mating” in which doctors these days tend to marry other doctors, not lower-paid nurses.

The result is two big incomes blended in one household. Even so, we are still talking about modest incomes compared to the Wall Streeters and others at the very top.

Say a man whose pay is at the threshold of the top 1 percent marries a man or woman at the same threshold. Their 2012 combined wages, Social Security data show, would be just under $500,000.

That is a lot of money, but still not enough to get them into the top half of the top 1 percent class of taxpayers, which started at $611,805.